Q&A talks about the increased interest in entrepreneurship among executives with John A. Challenger, the CEO of executive outplacement firm Challenger, Gray & Christmas.
Q: According to a recent study by Challenger, Gray & Christmas, “The percentage of job seekers starting their own businesses increased by 33 percent in the first half of 2013.” What were some of the driving factors behind that statistic? Is it a sign of a weak job market with fewer opportunities? Are these younger or older job seekers?
A: Our survey population tends to skew toward an older cohort of more experienced managers and executives. The median age of those surveyed in the second quarter of 2013 was 47. Among those starting their own business, about 80 percent were over the age of 40.
Our survey does not address the motivation behind the decision to start a business. However, it is unlikely that the recent uptick in start-up activity is due to a lack of job opportunities. On the contrary, it was the probably the improving job market that gave these former managers and executives the confidence to take an entrepreneurial path. Not only does a job market signal overall improvement in the economy, which bodes well for any business venture, but it also provides a fallback plan should the start-up prove unsuccessful.
Q: Your study further shows, “Even with the increase, however, less than 5 percent of managers and executives opted for self-employment over a more traditional career path, suggesting that starting a business remains far too risky for most people.” Of the people starting their own businesses, typically, how many are successful? What portion of the 4.1 percent of managers and executives will still have their own businesses in a year’s time? Could that be why others aren’t taking the risk?
A: Unfortunately, we do not perform follow-up surveys to determine the success rate of those starting their own businesses. However, data from various sources indicates that it is certainly a challenging endeavor, with anywhere from 50 percent to 70 percent of small businesses failing within the first 18 months, depending on who you ask and how the small business is defined.
Even those that survive can find self-employment to be financially challenging. A recent report from the U.S. Census Bureau indicated there were 22.5 million single-person or “nonemployer” firms in 2011. Revenue for these firms averaged $44,000. Only 7 percent of these firms had sales between $100,000 and $250,000.
Despite the challenges, a survey by Deluxe Corp., a company that helps small businesses with marketing, found that most small business owners remain confident. Of the 1,000 small business owners polled, 86 percent believe they can do anything they set their mind to, while 77 percent said they would rather learn from failure than never try.
Q: As your research points out, it was difficult to obtain credit and financing during the most recent recession because of tighter controls on lending. Does that mean businesses started during that time were more successful? Did not having easy access to credit require the businesses to be on stronger financial footing before launching? Or did it mean businesses started on a shoestring instead?
A: It is difficult to say whether businesses started during the recession were more successful. Even if only those with a stellar business plan were able to find funding, there were so many other headwinds that success was still fleeting. However, what the lack of funding may have done was push would-be entrepreneurs to find alternative sources of money. Some may have dipped into savings or asked family and friends to “invest” in their business. Perhaps the most significant development during this period was the emergence of crowd funding programs like Kickstarter, MicroVentures and Peerbackers.
Q: You also observe, “It is estimated that nearly two-thirds of small business owners work at full or part-time jobs while trying to get their entrepreneurial ventures off the ground” because of improving technology. What’s your experience? Can successful entrepreneurial ventures be launched without a full-time concentration on them?
A: It depends largely on the type of business. For the most part, starting a business is a full-time operation. Not only do you have to provide your service, but you have to go out and drum up business. There are some business ventures that are more conducive to a part-time commitment. Say you are a web-designer who wants to start a firm. You might be able to pick a couple of projects that are manageable while working another job. This way you can start building a portfolio and word-of-mouth endorsements.
Q: We seem to becoming more and more a society of self-employed. How does that impact your business?
A: Self-employment is indeed growing, but firms with 20 or more workers still represent the vast majority of employers. Companies with 500 employees or more have a total of 60 million workers on their payrolls, according the latest available data from the U.S. Census Bureau.
